Financial Fraud Verdict Against Terraform Labs Founder Do Kwon
Landmark Verdict in Manhattan Court
Following a two-week trial, a Manhattan jury found Singapore-based Terraform Labs and founder Do Kwon guilty of civil fraud charges on Friday, supporting the U.S. Securities and Exchange Commission’s claim that they deceived investors before the collapse of their stablecoin in 2022, which sent shockwaves through the cryptocurrency market.
Allegations of Deception Unveiled
The SEC accused Terraform Labs and Kwon of misleading investors in 2021 concerning the stability of TerraUSD, a stablecoin intended to uphold a value of $1. They were also charged with falsely indicating that Terraform’s blockchain was utilized in a prominent Korean mobile payment application.
Significant Losses Incurred
Kwon developed TerraUSD and Luna, a token subject to value fluctuations closely tied to TerraUSD. The SEC estimated that investors suffered over $40 billion in losses from both tokens when TerraUSD’s dollar peg faltered in May 2022.
Legal Ramifications and Consequences
The SEC is pursuing civil penalties and orders disqualifying Kwon and Terraform from engaging in the securities industry. Judge Jed Rakoff will determine penalties in the upcoming weeks following submissions from the SEC and the defendants.
Company Response and Regulatory Triumph
A Terraform spokesperson expressed disappointment with the verdict, emphasizing their belief that the SEC lacks the authority to initiate this case. Conversely, SEC’s Enforcement Director Gurbir Grewal hailed the jury’s decision, stressing the importance of crypto markets complying with regulations.
Market Fallout and Continuing Legal Battles
The collapse of TerraUSD and Luna triggered a downturn in the crypto market, leading to bankruptcies in 2022. Terraform sought bankruptcy protection in January, while Kwon, now under arrest in Montenegro, faces extradition requests from the U.S. and South Korea for criminal charges.
Closing Arguments and Legal Maneuvers
During closing arguments, the SEC contended that Terraform’s success was built on deception. Terraform’s defense emphasized the honesty of their product disclosures, even when faced with failures. The case remains contentious, with Terraform poised to challenge the SEC’s allegations on appeal post-final judgment.
